Impacts of Wayfair Ruling Greater Than Ever in Age of COVID

State Tax Revenues Changing Shape

In the landmark South Dakota v. Wayfair ruling handed down by the U.S. Supreme Court in 2018, the court held by a 5–4 majority that states may charge tax on purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state. In the 45 states, plus the District of Columbia, that collect sales tax, sales tax revenue is an enormous source of revenue, amounting to 35% of state tax revenue on average.

Because of the ongoing pandemic and associated lock-down, consumer demand has plummeted tremendously in recent months. Directly correlated, sales tax revenue has declined in all 50 states, by as much as 40% for some states in the month of April. For many states, one of the few saving graces has been an unprecedented increase in online sales, from which they can now collect sales tax thanks to the Wayfair ruling.

Some State Still Not Onboard

Sales taxes were not previously collected in Alaska, Oregon, Montana, Delaware or New Hampshire, and Wayfair did nothing to change this. Most other states though quickly enacted laws to begin collecting any potential sales tax revenue left on the table. Two states, Missouri and Florida, collect sales taxes on in-person sales, but have no provisions for collecting sales taxes on remote sales.

Largely due to a drop in tourism, Florida’s state tax revenue was $878 million lower than projected in April alone. Some of this lost revenue will be offset by federal grants, but alternative methods of revenue generation are already in consideration, including collecting sales taxes on remote sales. Pressure to change the revenue code we only increase as budget shortfalls become more apparent toward the end of the year. Florida-based businesses should be prepared for the implications for such a shift. 

If you need help navigating these trying economic times as the nature of your business and client bases changes, call the dual-licensed attorney-CPAs at Daniel Rosefelt & Associates to enlist a trusted advisor today.